Cash-rich Exxon, Chevron use stock for mega deals amid energy market jitters

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People involved in the negotiations of these deals said that using stock as currency helped reconcile price disagreements with acquisition targets in a volatile energy market

are flush with cash yet their acquisition targets are taking stock as the only form of payment, an arrangement that allows the two largest U.S. energy companies to clinch transformative deals despite volatile oil and gas prices.The moves followed similar, smaller all-stock deals in the last three years, including Exxon’s $4.9-billion agreement to buy Denbury and Chevron’s acquisition of PDC Energy and Noble Energy for $6.3-billion and $5-billion, respectively.

The CEOs of the acquired companies, some of whom were founders and attached to them, were reluctant to agree to cash deals that would crystallize a price they may end up regretting should energy prices move up, these people said. “It’s a win-win. Since our shareholders are getting Chevron stock, we get to participate in the upside, and also get a higher dividend,” he said.

The Hess deal represents a small 4.9 per cent premium to Friday’s closing share price. This is because the company’s valuation was already frothy; Hess shares have returned 330 per cent to their shareholders, including dividends, over their last three years, and Morningstar analysts said on Monday they were trading 40 per cent over what they believe was their fair value.

Using just stock as deal currency raises the question of what Exxon and Chevron will do with their cash piles, which have grown as global oil supply remains tight. Exxon and Chevron had $29.5-billion and $9.3-billion in cash, respectively, as of the end of June.

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